Reimbursement of insured deposits
When a Member Institution (MI) fails and enters liquidation, it ceases to operate and depositors no longer have access to their accounts. In these cases, CDIC sends rapid payment to depositors to cover their insured deposits. The payments are based on CDIC deposit insurance rules and coverage limits as well as the information contained within the MI’s records at the time of failure. Payment is automatic and depositors do not have to file a claim with CDIC. Of the 43 MI failures handled by CDIC, 24 were resolved in this way and no one lost a dollar of deposits under CDIC protection.
Conditions for the reimbursement of insured deposits
Reimbursement of insured deposits is CDIC’s baseline option when there is no other resolution option that minimizes CDIC’s exposure to loss and when closing the institution poses no risk to Canada’s financial stability.
CDIC may elect to effect a reimbursement of insured deposits in certain specific circumstances including:
- If the MI is unable to make a payment in respect of deposits to customers by reason of an order of the court or of any action taken by a supervisory or regulatory body (e.g. if the Superintendent of Financial Institutions takes control of the MI and prevents it from making such payments); and
- if CDIC cancels or terminates the MI’s deposit insurance policy. CDIC can take steps do so when one or more of the following events occur:
- a breach of the CDIC Act, the CDIC By-laws or a condition of the MI’s deposit insurance policy;
- in CDIC’s opinion the MI is or is about to become insolvent;
- the MI has ceased to accept deposits; and/or the MI has not collected deposits within two years from the date it became an MI.
As resolution authority and deposit insurer, CDIC must reimburse insured deposits in a prompt and timely manner once a reimbursement is set in motion.
That means CDIC automatically pays all insured deposits in a timely manner. Then CDIC legally “steps into the shoes” of depositors in the liquidation process to recover, over time, as much of these funds as possible through the sale of the remaining assets of the failed MI.
The process can be divided into four stages:
If CDIC believes that it would be in the best interest of both depositors and CDIC that preparations be made to make a reimbursement, CDIC would act in accordance with the Guide to Intervention and conduct examinations of the MI’s books and records in order to develop a detailed understanding of the MI’s deposit information and accounting systems and processes. This assists CDIC in developing cost estimates and operational activities for a payment to depositors.
A review of the MI’s assets may also be undertaken to estimate CDIC’s potential losses in liquidation relative to other resolution options.
Once a reimbursement is triggered, CDIC electronically receives deposit data from the failed MI, and balances and reconciles the data to ensure that all depositor accounts have been identified and insurance is calculated correctly.
It is useful to know that all MIs are required to keep accurate and complete records of deposits and quickly provide them to CDIC to enable a fast determination of deposit insurance and payment.
CDIC would communicate directly with insured depositors and send payment based on the address information in the failed MI’s records.
Funds for the reimbursement would come from CDIC’s primary funding sources, our ex ante (insurance) fund and our statutory borrowing authority, and not from taxpayers.
In the case of uninsured deposits, depositors with funds not protected by CDIC would need to file a claim with the liquidation firm when it is appointed by the courts in order to participate in the liquidation of the failed member institution.
Upon making the reimbursement, CDIC would have an unsecured claim against the MI in the winding-up proceedings and would typically be the most significant creditor in the liquidation. CDIC would prepare and file its proof of claim with the liquidator for reimbursement of its deposit insurance payments and costs.
As CDIC would typically be the MI’s most significant creditor, we would be involved in the oversight of the liquidation management process conducted by the appointed liquidator. CDIC (together with any other significant creditors) would be a member of the failed MI’s estate creditor committee which would consider and approve the liquidation and sale of the MI’s assets. The liquidator would be responsible for administering the sale and disposal of the assets of the failed MI.
In this final phase, distributions are made to creditors based on the realization of asset value in liquidation by the liquidator. As assets are sold, the liquidator would manage the claims process and reimbursement to creditors according to their priority ranking. In the case of uninsured deposits, depositors with funds not protected by CDIC would need to file a claim with the liquidation firm when it is appointed by the courts in order to participate in the liquidation of the failed member institution.
As a significant creditor, CDIC would continue to be involved in claims issues that arise during the estate management process, including disputes, and outcomes of any forensics investigations and litigation which could result in further recoveries.